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  • Alex Pettee, CFA

Rates Retreat • Downbeat Data • Real Estate Rebound

  • U.S. equity markets rebounded Friday while the benchmark 10-year Treasury yield slipped to the lowest level since May, reflecting a building consensus that slowing global economic growth will contain inflationary pressures.

  • Starting the back half of the year on a higher note following its worst first-half performance since 1970, the S&P 500 advanced 1.0% today, trimming its drawdown back below 20%.

  • Real estate equities were among the leaders today - and on the week - benefiting from the retreat in global interest rates and expectations of U.S. economic outperformance.

  • The downbeat economic data continued today with weaker-than-expected PMI data this morning, dragging the Citi Economic Surprise Index to the lowest-level since early in the pandemic.

  • We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook published this weekend.

Income Builder Daily Recap

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U.S. equity markets rebounded Friday while the benchmark 10-year Treasury yield slipped to the lowest level since May, reflecting a building consensus that slowing global economic growth will contain inflationary pressures. Starting the back half of the year on a higher note following its worst first-half performance since 1970, the S&P 500 advanced 1.0% today to trim its drawdown to back under the 20% "bear-market" threshold. Real estate equities were among the leaders today - and on the week - benefiting from the retreat in global interest rates and expectations of U.S. economic outperformance relative to other regions. The Equity REIT Index advanced 2.0% today with all 19 property sectors in positive territory while Mortgage REIT Index rallied 2.8%.

Global benchmark interest rates continued their recent "u-turn" today amid recession concerns as the 10-year Treasury Yield closed the week at 2.89%, down another 8 basis points today and nearly 25 basis points on the week. The downbeat economic data continued today with weaker-than-expected PMI data this morning, dragging the Citi Economic Surprise Index to the lowest-level since early in the pandemic. Hopes that a "soft landing" will cool inflationary pressure and expectations of U.S. economic leadership helped to push all eleven GICS equity sectors higher today. Homebuilders and the broader Hoya Capital Housing Index were a notable bright spot today on hopes of long-awaited relief from the year-long surge in mortgage rates.

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook published this weekend.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector


Cannabis: On Thursday, Innovative Industrial Properties (IIPR) announced that it amended its lease with Green Thumb Industries which provides $55M in reimbursement to Green Thumb for the recently completed development of an industrial building for cannabis cultivation and processing in Pennsylvania. IIPR owns and leases two regulated cannabis cultivation and processing facilities in Illinois and Ohio to Green Thumb besides the Pennsylvania facility. Our recent report - Cannabis REITs: Weeding Out the Weak - discussed the operating health and performance of the tenants of cannabis REITs, noting that cannabis REITs have faced remarkably few tenant non-payment issues. Owning the "Pharmland" - the physical real estate - had been one of the few cannabis plays that has worked during a decade-long stretch of dismal investment performance from broader cannabis ETFs.

Manufactured Housing: Earlier this week, we published Manufactured Housing: Recession Resistant REITs. Manufactured Housing REITs - one of the most "recession-resistant" property sectors given their countercyclical demand profile- have rebounded over the past month following uncharacteristic underperformance in early 2022. MH REITs have remarkably delivered nine consecutive years of outperformance compared to the broader REIT Index, benefiting from strong operational execution, significant supply constraints, demographic tailwinds, and high barriers to entry. While MH REITs have historically been among the most rate-sensitive sectors due to their remarkable consistency in delivering steady 3-4% rent growth, we believe their inflation-hedging potential is underappreciated.

Hotel: This weekend, we'll publish an updated report on the Hotel REIT sector to the Income Builder marketplace. Despite depression-like levels of consumer confidence and surging transportation costs, U.S. consumers have continued to travel this summer at levels that are within shouting distance of pre-pandemic rates. In the latest report from STR, U.S. hotel revenue per available room (RevPAR) reached an all-time weekly high on a nominal basis and a pandemic-era high on an inflation-adjusted basis for the week ending June 18th. While occupancy rates are still about 5% below 2019-levels, average room rates are higher by nearly 15% on average, driving a 9.4% increase in comparable RevPAR. Skepticism over the sustainability of this momentum, however, has pushed hotel REITs lower by nearly 20% over the past month. In the report, we'll discuss our updated outlook and recent allocations.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were broadly higher today with residential mREITs gaining 2.4% while commercial mREITs advanced 2.1%. On a quiet day of newsflow, Western Asset Mortgage (WMC) slipped about 1% after announcing a 1-for-10 reverse stock split of its common shares which will be effective as of the market open on July 11, 2022. Notable upside standouts today included Invesco Mortgage (IVR) - which posted double-digit gains for a second-straight week - along with AGNC Investment (AGNC) and Annaly Capital (NLY) which erased much of their week-to-date declines.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished higher by 1.13% today, on average. REIT Preferreds are lower by roughly 13% on a total return basis this year after ending 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 7.06%. In the capital markets today, Terreno (TRNO) announced an increase in borrowing capacity under its revolving credit facility by $150 million to $400 million. Elsewhere, Fitch Ratings downgraded the credit rating for a pair of office REITs, revising its issuer rating for SL Green (SLG) to BBB- from BBB and revising its issuer rating for Vornado (VNO) to BBB- from BBB.


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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.